Wires connecting servers installed by telecommunications and IT companies in the building located on 151Front Street. Owned by Allied Properties REIT, the place is dedicated to rent space to companies in need of high volumes data storage and traffic. Toronto September 08, 2010. (Fernando Morales/The Globe and Mail) (Fernando Morales/Fernando Morales/The Globe and M)

Wires connecting servers installed by telecommunications and IT companies in the building located on 151Front Street. Owned by Allied Properties REIT, the place is dedicated to rent space to companies in need of high volumes data storage and traffic. Toronto September 08, 2010. (Fernando Morales/The Globe and Mail)(Fernando Morales/Fernando Morales/The Globe and M)

Canadians are investing billions of dollars, from large network hubs to the newest online video subscription, in the Internet, but this spending is taking place in a policy vacuum. The usage-based billing debate, with sloganeers either calling on customers to start "paying for what you use" or on large Internet service providers to stop "trying to kill the open Internet," is only the latest manifestation of this uncertainty.

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There are good reasons, in theory, to allow UBB - the levying of charges, based on the amount of material downloaded, by large providers on smaller providers who use their network infrastructure. But the federal government should send a recent decision on UBB back to the CRTC; not because it would make for better politics, but as a first step in cleaning up Canadian Internet policy.

In many competitive marketplaces, and in utilities, the commodity price per unit is often well-known. Consumers can know how much wheat costs by the bushel, or electricity by the kilowatt hour. But the actual cost to ISPs of downloading a lot of data is a black box; while large providers on occasion file information in confidence to the CRTC, the public has little ability to assess their claims around whether, say, $1 per gigabyte (equivalent to around an hour of online video) for heavy users is justifiable. The large ISPs argue that this is acceptable, because we have a competitive marketplace.

But we don't, at least not truly. In many parts of Canada, the market for Internet services into the home is a duopoly; the choice is between a local cable company and a local phone company. The smaller providers, the subject of the recent UBB decision, make up only around 6 per cent of the national market. In the U.S., the marketplace provides for no caps on data, or much higher caps, than those in Canada.

The CRTC decision, in which smaller providers get a 15-per-cent price discount from what the large providers' own customers pay for data downloading, is not supported by any particular economic evidence. It indirectly regulates price, something the CRTC is told to avoid. It is, in other words, a messy compromise that emanates from conflicting and contradictory mandates and federal direction.

For example, a 2006 policy statement sets out a more market-based approach to regulating the sector. Decisions both before and since then require larger ISPs to provide access to smaller ones. The result is that smaller ISPs, are in effect, "wards of the state," where individual regulatory decisions can make or break them, and larger ISPs wonder whether they will have to carry the entire load of updating Canadian Internet infrastructure.

The federal government needs to amend these policies, which have not been updated since the advent of widespread mobile data or online video. The guiding principles should encourage competition and investment, including more foreign investment; give sufficient clarity to the CRTC to allow it to proceed without constant second-guessing; and, where there's a conflict, err on the side of encouraging more access.

For while competition within the telecommunications sector is desirable, it is prone to the occasional market failure. The greater imperative is in getting the greatest amount of speedy Internet access to the greatest number of Canadians at the lowest price.

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